[Asset allocation for a] 75 year old

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woodedareas
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[Asset allocation for a] 75 year old

Post by woodedareas » Tue Aug 11, 2015 5:28 pm

Simply said I am in
The V Life Strategy Income Fund. About 80% Bond Index and about 20% Equity Index. I have over 2 million $. Any suggested changes? I like the fact it rebalances. My question about suggestions, pertains to assest allocation for a 75 year old. I am not concerned about return but preserving what I have with some nominal degree of return. I am too old to recover from a bad market.

RadAudit
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Re: 75 year old

Post by RadAudit » Tue Aug 11, 2015 6:09 pm

You should do OK doing what you are doing with what you have.

$2 mill at a SWR of 3% is $60,000 a year (indexed to inflation) for about 30 years. You'll be 105 by then. If that's enough for you to live on, you should be OK. I'm making the assumption you also have SS, etc.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The calvary isn't coming, kids. You are on your own.

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cheese_breath
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Re: 75 year old

Post by cheese_breath » Tue Aug 11, 2015 6:13 pm

Almost 75 myself, and I'd more concerned about your 80% bonds than the 20% stocks. If (when) interest rates begin rising and continue rising for an extended period your bonds will lose value, and you may not be around long enough to wait for them to recover. Personally I have no bonds. All my fixed income is in TIAA Traditional and FDIC insured savings and CD.
The surest way to know the future is when it becomes the past.

woodedareas
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Re: 75 year old

Post by woodedareas » Tue Aug 11, 2015 6:44 pm

Could you explain the rationale forTIAA. I am interested in your reason for TIAA and I agree with your concern for higher interest rates. I am watching the potential rate increase.

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cheese_breath
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Re: 75 year old

Post by cheese_breath » Tue Aug 11, 2015 7:33 pm

First I need to let you know TIAA Traditional isn't available to everyone. I have it in my TIAA-CREF IRA with immediate availability if I need it. My rational is I can earn a 3% guaranteed interest rate. That's a couple percent more than most savings accounts and CDs. Even though some bond funds may be earning more right now 3% will seem pretty good when bond values begin declining.

My concern is that 'till now I have been able to take my entire RMD out of my Vanguard IRA each year. But this year will just about drain it dry, so I'll have to start taking it from my TIAA Traditional next year. When that happens I guess I'll just put it in the best taxable savings and/or CDs I can find. But at my age I won't put it in bond funds.
The surest way to know the future is when it becomes the past.

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cheese_breath
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Re: [Asset allocation for a] 75 year old

Post by cheese_breath » Wed Aug 12, 2015 9:39 am

Just to add a little to my previous comments. At age 75 and knowing interest rates will eventually rise (but not knowing when) I'd personally want to reduce my bond fund exposure significantly even if I didn't have TIAA Traditional. I'd probably convert a lot to cash and put it in the highest interest savings and CDs I could find. I understand this would lose value because of inflation, but maybe not as much as it might lose in bonds when interest rates begin going up. This feeling is based on my understanding that we (both you and I) want to preserve as much principal as possible, and my feeling that at age 75 we won't be around long enough to experience the bond funds recovery when interest rates level off.

I suppose an alternate approach would be to go with individual bonds instead of funds and hold them to maturity. Even if we don't survive until their maturity presumably our heirs would, but then we incur similar risks as when holding individual stocks,
The surest way to know the future is when it becomes the past.

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artthomp
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Re: [Asset allocation for a] 75 year old

Post by artthomp » Wed Aug 12, 2015 3:42 pm

I am 75 years old and retired. When I became concerned about my asset allocation (2008-2009), I wrote a private message to the expert Diehard Bond expert, Mel Lindauer. He suggested I look at the Vanguard Retirement Income Fund. I examined it, liked it, and since I'm a fairly conservative investor, I setup my investment plan basically according to their allocation plan. I am allocating my IRA, Roh IRA, and my taxable in the proportions of their allocation. I don't want to use their fund directly for tax reasons. For example, as I take IRS Required Distributions I am investing excess taxable proceeds in equities because of the more favorable tax treatment.
My Retirement Income modified asset allocation:
VMMXX - Money Market - 2.0% - taxable, Roth, IRA
VBTLX - Total Bond Index - 38.0% - IRA
VTAPX - Short Term Inflation Protected - 16.0% - IRA
VTABX - Total International Bond Index - 14% - IRA
Total Fixed Income - 70%
Total Stock ETF (VTI) - 15.37% - taxable, IRA
Total World ETF (VT) - 6.71% - Roth IRA
Total International ETF (VXUS) - 7.92% - taxable, IRA
Total Equities - 30%
Art

Miriam2
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Re: [Asset allocation for a] 75 year old

Post by Miriam2 » Wed Aug 12, 2015 6:39 pm

cheese_breath wrote:Almost 75 myself, and I'd more concerned about your 80% bonds than the 20% stocks. If (when) interest rates begin rising and continue rising for an extended period your bonds will lose value, and you may not be around long enough to wait for them to recover. Personally I have no bonds. All my fixed income is in TIAA Traditional and FDIC insured savings and CD.
cheese_breath wrote:Just to add a little to my previous comments. At age 75 and knowing interest rates will eventually rise (but not knowing when) I'd personally want to reduce my bond fund exposure significantly even if I didn't have TIAA Traditional. I'd probably convert a lot to cash and put it in the highest interest savings and CDs I could find. I understand this would lose value because of inflation, but maybe not as much as it might lose in bonds when interest rates begin going up. This feeling is based on my understanding that we (both you and I) want to preserve as much principal as possible, and my feeling that at age 75 we won't be around long enough to experience the bond funds recovery when interest rates level off.
cheese_breath -
Are you saying that OP's LifeStrategy Income fund at 20/80 is too risky on its bond side in these financial times because the bonds could go way down with no time to recover by the bitter end?
If so, does this mean you think the bonds are not diversified enough to weather interest rate fluctuations?
How about Vanguard Retirement Income [VTINX] at 30/70 - same risky bond problem?

I'm not setting you up :happy but I always value your posts and I'm just trying to understand what your concern is with the bonds Vanguard has in their retirement focused funds! I thought Vanguard would feather their bond allocation with enough savvy to weather interest rate issues, but . . .

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cheese_breath
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Re: [Asset allocation for a] 75 year old

Post by cheese_breath » Wed Aug 12, 2015 8:07 pm

Miriam2 wrote:
cheese_breath wrote:Almost 75 myself, and I'd more concerned about your 80% bonds than the 20% stocks. If (when) interest rates begin rising and continue rising for an extended period your bonds will lose value, and you may not be around long enough to wait for them to recover. Personally I have no bonds. All my fixed income is in TIAA Traditional and FDIC insured savings and CD.
cheese_breath wrote:Just to add a little to my previous comments. At age 75 and knowing interest rates will eventually rise (but not knowing when) I'd personally want to reduce my bond fund exposure significantly even if I didn't have TIAA Traditional. I'd probably convert a lot to cash and put it in the highest interest savings and CDs I could find. I understand this would lose value because of inflation, but maybe not as much as it might lose in bonds when interest rates begin going up. This feeling is based on my understanding that we (both you and I) want to preserve as much principal as possible, and my feeling that at age 75 we won't be around long enough to experience the bond funds recovery when interest rates level off.
cheese_breath -
Are you saying that OP's LifeStrategy Income fund at 20/80 is too risky on its bond side in these financial times because the bonds could go way down with no time to recover by the bitter end?
If so, does this mean you think the bonds are not diversified enough to weather interest rate fluctuations?
How about Vanguard Retirement Income [VTINX] at 30/70 - same risky bond problem?

I'm not setting you up :happy but I always value your posts and I'm just trying to understand what your concern is with the bonds Vanguard has in their retirement focused funds! I thought Vanguard would feather their bond allocation with enough savvy to weather interest rate issues, but . . .
No offense taken. I'm just giving my opinion that it's riskier for someone in advanced years like OP and myself than for younger people who have the time to live through any possible downturns until the recovery. I know not everyone will agree with me, but that's OK. One of the values of these forums is diverse viewpoints so questioners can make their own decisions instead of just following the crowd.
The surest way to know the future is when it becomes the past.

john94549
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Re: [Asset allocation for a] 75 year old

Post by john94549 » Wed Aug 12, 2015 8:29 pm

For a person 75 years of age, with such a conservative AA, any suggestion would no doubt amount to a rounding error. While I might favor a CD ladder, OP has clearly "locked in his gains". As Wm. Bernstein noted "once you have won the game".

woodedareas
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Re: The Three Fund Portfolio

Post by woodedareas » Sat Oct 10, 2015 9:07 am

[Moved into here from: The Three Fund Portfolio, see below. --admin LadyGeek]

I use Vanguard,s Life Strtegy Income Fund which essentially is comprised of index funds.My question is very simple..... In addition I have 10 blue chip stocks that I have had for years on the assumption they would serve as a sourc of continuous dividends. I do receive dividends but they distort my AA which at the age of 75 is 80/20 and move it to about 70/30. Although my Vanguard fund is working well with extremely modest returns my question is should I sell the individualstween there is stock holdings and place the proceeds into the Vanguard fund? The stocks are in a retirement account.

Any suggestions to this delema would be very appreciated. During this past year the stocks have taken a modest hit but may very well improve..... Never can guess. My wife decided her AA was 70/20 with the hope of better returns but this year her index funds have produced a -1%. It may seem insignificant but there is definitely a definite difference between 10% and 30% in the stock el m not of an AA.

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bertilak
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Re: The Three Fund Portfolio

Post by bertilak » Sat Oct 10, 2015 9:44 am

woodedareas wrote:I use Vanguard,s Life Strtegy Income Fund which essentially is comprised of index funds.My question is very simple..... In addition I have 10 blue chip stocks that I have had for years on the assumption they would serve as a sourc of continuous dividends. I do receive dividends but they distort my AA which at the age of 75 is 80/20 and move it to about 70/30. Although my Vanguard fund is working well with extremely modest returns my question is should I sell the individualstween there is stock holdings and place the proceeds into the Vanguard fund? The stocks are in a retirement account.

Any suggestions to this delema would be very appreciated. During this past year the stocks have taken a modest hit but may very well improve..... Never can guess. My wife decided her AA was 70/20 with the hope of better returns but this year her index funds have produced a -1%. It may seem insignificant but there is definitely a definite difference between 10% and 30% in the stock el m not of an AA.
It seems anything that moves an AA from 80/20 to 70/30 must be a fairly significant part of the portfolio. If I calculate correctly about 1/3 of your stock holdings are in individual stocks -- 10 of the 30%. That's a lot. Seems you have a problem with diversification more than with AA.

I would sell them all and either put the proceeds into that Vanguard LS fund, thereby fixing the diversification problem AND changing your AA or, if you are happy with your current overall AA, you may want to put the proceeds from the sale into a pure stock fund, like the Total Stock Market Fund.

About your wife's situation: Not sure I fully followed all you wrote, but if your wife's portfolio has a much higher stock allocation than yours it is not surprising that the returns this past year are not as good. This may or may not be a problem.

In summary, I think you need to rethink things by looking at the overall portfolios, yours and your wife's, as a single portfolio then ask yourself:
  1. What is the overall AA and is that the way you want it?
  2. What percentage of your overall stock allocation is in individual stocks and does that introduce too much risk due to poor diversification? (I suspect the answer to this one is yes.)
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Re: [Asset allocation for a] 75 year old

Post by LadyGeek » Sat Oct 10, 2015 9:51 am

FYI - I moved woodedareas' post (and bertilak's reply) into here. It's best to keep all the information in one spot, which allows us to give you appropriate advice for your complete situation.
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